Govt to check interest level in planned global bond issue

Dadan Wijaksana, The Jakarta Post, Jakarta

The government is making preparations to issue global bonds next year as it plans to send officials to major international financial centers later this year to measure investors' interest in the scheme.

"We'll be sounding out the international market by the end of this year. We'll hold talks in centers of major investors," Minister of Finance Boediono said on Friday, without elaborating either on the size or the exact time of the planned bonds issue.

The government previously said it intends to issue sovereign bonds in 2004 to help finance the state budget as the country would no longer obtain a debt rescheduling facility from the Paris Club of creditor nations once the existing International Monetary Fund (IMF) program ends in December.

If realized, it would become the country's first global bonds issue since the 1997 financial crisis.

Meanwhile, Hubert Neiss, a senior advisor at the Deutsche Bank welcomed the plan, saying that under the current circumstances, the market would have no problem absorbing Indonesian bonds.

"It's feasible. The market will be very receptive. Indonesia's (rating) has just been upgraded and this is just a further indication of financial normalization.

"Instead of relying on the IMF's money, countries normally rely on the capital market as a source of funds," Neiss, a former IMF senior official who led the Fund's team in bailout negotiation talks with the government in the wake of the crisis, told The Jakarta Post.

The Deutsche Bank is a large international player in bonds issues.

International rating agency Moody's Investors Service recently said it plans to upgrade Indonesia's credit rating from the current B3 rating as the government had been successful in stabilizing the macroeconomic indicators, reducing public debt and reviving investor confidence.

Another rating agency, Standard & Poor's, had earlier upgraded Indonesia to B-, which is equal to Moody's current rating.

In fact, due to the improving macroeconomic picture and the lower interest rate environment, a number of large local firms have successfully issued overseas bonds to raise cash for working capital and to repay debts.

The government is in dire need of extra financing sources, especially to plug next year's state budget deficit, which is projected at 1 percent of the gross domestic product.

Boediono acknowledged earlier that 2004 would be a critical year for Indonesia partly due to this financing aspect as the existing five-year IMF program will no longer be extended when it expires at the end of this year. The discontinuation of the IMF program was done at the request of the People's Consultative Assembly (MPR), the country's highest legislative body.

Without the IMF overseeing Indonesia's economic reform program, the Paris Club will not grant its rescheduling facility. According to one estimate, the government will lose at least US$3 billion worth of a debt rescheduling facility next year.

In the past couple of years, the Paris Club rescheduling facility has been instrumental in easing pressure on the state budget as it could postpone the repayment of sovereign debts.

Another pressure weighing heavily on the state budget is the Rp 24.7 trillion worth of public debts coming due in 2004.

These factors forced the government to come up with the international bond issue plan, along with other options.

Many analysts have said that global investors, seeking to find better investment returns amid the declining international interest rate and volatile stock market would be attracted to the government bonds issue.